Tag Archives: austerity

Following on from the first political discussion meeting held in September in Whitby on AUSTERITY MYTHS some members raised the issue that additional government spending, which is the distinguishing policy feature of our 2017 manifesto could lead to inflation.

Neo- liberals political strategy seeks to establish as fact that there is no economic alternative to AUSTERITY by creating a popular common sense ( Gramsci ) about economics that once established precludes consideration of economic and political choice. This strategy of the RIGHT is dangerous because it undermines democracy by denying that there is a place in politics for fundamental differences between political parties – hence we end up with all parties presenting themselves as in the centre and as moderate. Popular reaction is naturally -‘they are all the same’. However this changed in 2017 with Labour presenting a LEFT manifesto, and the rest is history.

Just like the myth that there is no MONEY TREE this inflation myth has no substance.

But first what is inflation ? – simply it is a general increase in prices through out the economy and can be measured in a number of ways – but that is another story.

The neo-liberal explanation is that increases in demand and the amount of money in the economy lead to inflation, and strangely their charge is that it is government spending that is responsible for this!! – therefore government spending must be cut !!

The following are some of the reasons why this charge is groundless and hopefully will give Labour Party members the confidence to support the 2017 manifesto with conviction.

1 Since the banking crash of 2007/8 governments have through the Bank of England printed electronically £435bn and injected this into the U.K. economy. Similar action has taken place in the U.S. and the Eurozone. In all these cases inflation has been stable or fallen over the last 10 years.

2 The vast majority of money in any economy is created by private sector high street banks as they create loans – in the U.K. 95%, and in the U.S. the percentage is even higher, and so if the neo-liberal theory is partially correct they are aiming at the wrong target – the solution is government REGULATION of the amount of lending by the private banks.

3 If an economy has spare productive capacity i.e. factories are producing less than they are capable of producing, and there is under employment as in the U.K. at present, inflation is most unlikely.

4 If firms have spare capacity they are most likely to increase output than increase price as this will reduce unit costs.

5 Monopoly firms will increase price as they don’t have competition, as will oligopolistic firms (where there are a few giant firms supplying similar products) The solution here is hardly to cut government spending – but for government to REGULATE the price power of these firms.

6 How did this myth arise. During the 1970’s there was high inflation and the Trade Unions got it in the neck from the M.S.M. but an evidence approach would identify a range of other changes behind this famous episode of inflation

In the early 1970,s there were extremely large increases in oil prices which fed into all economies as O.P.E.C wielded new monopoly power, the U.S. brought to an end the post war fixed exchange rate system, and DEREGULATION of the U.K. banking system began which lead to the start of increases in private debt and an increase in the money supply and demand. All these factors were inflationary, but even in the 1970,s it was government spending that was blamed and Trade Unions seeking to defend their members living standards. Neo – Liberalism used this situation as its launch pad and it has not looked back.

7 All government spending returns to the private sector. Social security payments are spent in the private retail sector, government infrastructure spending on council housing or on environmental projects goes to private construction firms. This all creates jobs ! When Neo-Liberals argue against government spending they are arguing against a prosperous private sector. They don’t appear to understand the connections between the different sectors of an economy.

In conclusion, it is pretty clear that NEO-LIBERAL politics is about reducing the size of the state to Victorian levels and damaging both the general population and the private sector.